Consultation document - Public consultation on the ...

1 Commission europ enne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGI - Tel. +32 22991111 EUROPEAN COMMISSION DIRECTORATE-GENERAL FOR FINANCIAL STABILITY, FINANCIAL SERVICES AND CAPITAL MARKETS UNION Financial markets Corporate reporting, audit and credit rating agencies Consultation document STRENGTHENING OF THE QUALITY OF CORPORATE REPORTING AND ITS ENFORCEMENT Disclaimer This document is a working document of the Commission services for Consultation and does not prejudge the final decision that the Commission may take.

2 The views reflected on this Consultation paper provide an indication on the approach the Commission services may take but do not constitute a final policy position or a formal proposal by the European Commission. 2 You are invited to reply by 4 February 2022 at the latest to the online questionnaire available on the following webpage: Please note that in order to ensure a fair and transparent Consultation process only responses received through the online questionnaire will be taken into account and included in the report summarising the responses.

3 This Consultation follows the normal rules of the European Commission for Public consultations. Responses will be published in accordance with the privacy options respondents will have opted for in the online questionnaire. Responses authorised for publication will be published on the following webpage: Any question on this Consultation or issue encountered with the online questionnaire can be raised via email at 3 INTRODUCTION High quality and reliable corporate reporting is of key importance for healthy financial markets, business investment and economic growth.

4 The EU corporate reporting framework should ensure that companies publish the right quantity and quality of relevant information allowing investors and other interested stakeholders to assess the company s performance and governance and to take decisions based on it. High quality reporting is also indispensable for cross-border investments and the development of the capital markets union (CMU). In the context of this Consultation , corporate reporting comprises the financial statements of companies, their management report that includes the non-financial and corporate governance statements and country-by-country reporting.

5 It would also include sustainability information pursuant to the proposed Corporate Sustainability Reporting Directive. The Consultation takes into account the outcomes of the 2018 Consultation on the EU framework for Public reporting by companies and the 2021 Fitness Check on the EU framework for Public reporting by companies. This Consultation however focuses on companies listed on EU regulated markets (hereafter listed companies or issuers ), that is a subset of the companies subject to Public reporting requirements under EU law.

6 Please note that in terms of reporting, this Consultation does not seek the views of stakeholders on the applicable accounting standards, such as International Financial Reporting Standards (IFRS) or the standards in the Accounting Directive, or the views of stakeholders on Public country-by-country reporting or the Commission s proposal for a Corporate Sustainability Reporting Directive. The 2018 Consultation did not cover the areas of corporate governance or statutory audit. Therefore, this Consultation contains questions to evaluate aspects of the Audit Regulation 537/2014, Audit Directive 2006/43/EC and of Accounting Directive 2013/34/EU.

7 However, it covers the EU framework on corporate governance only in so far as relevant for corporate reporting by listed companies and the statutory audit of so-called Public interest entities (PIEs). Listed companies, credit institutions, insurance undertakings and entities designated as such by Member States are PIEs. This Consultation also builds on the work carried out by the European Securities and Markets Authority (ESMA) and the Committee of European Audit Oversight Bodies (CEAOB). This Consultation is divided into five parts.

8 The first part seeks your views about the overall impact of the EU framework on the three pillars of high quality and reliable corporate reporting - corporate governance, statutory audit and supervision. It also seeks your views about the interaction between the three pillars The second part of the questionnaire focuses on the corporate governance pillar, as far as relevant for corporate reporting. It aims to get your feedback in particular on the functioning of company boards, audit committees and your views on how to improve their functioning 4 The third part focuses on the statutory audit pillar.

9 The first questions in this part aim at getting your views on the effectiveness, efficiency and coherence of the EU audit framework. It focuses in particular on the changes brought by the 2014 audit reform. Subsequently, the questions aim to seek views on how to improve the functioning of statutory audit The fourth part asks questions about the supervision of PIE statutory auditors and audit firms Finally, the Consultation will ask questions about the supervision of corporate reporting and how to improve it This Consultation will directly feed into an impact assessment that the Commission will prepare in 2022 with a view to possibly amend and strengthen the current EU rules.

10 5 Consultation QUESTIONS 1. PART I - THE EU FRAMEWORK FOR HIGH QUALITY AND RELIABLE CORPORATE REPORTING The EU framework for corporate reporting has developed significantly since the EU adopted the fourth company law Directive (Directive 78/660/EEC) which coordinated the national provisions on the presentation, content and publication of annual accounts and management reports of limited liability companies. This Directive also already required a statutory audit of the annual accounts of limited liability companies.